Volatility Report (click title for full report)
February 21, 2021
Covid will be gone by April others say herd immunity by July. Either way, the news on the pandemic is good.
have begun to accelerate higher with the relaxation that the lid is about to come off the US economy. Add to that “the flying high money growth chasing raw materials and the bonds market sees inflation eating at its real return pushing bonds prices lower.
30-year treasury futures are almost in free fall on Friday with all the good news. From the long bars to the short bars, the Panic index is extreme, including the monthly where TEM is within a few decimals of extreme panic. Panic lows are like water draining from a tub; the closer the water gets to the bottom, the faster the water moves.
Going back to our comment last week regarding a peak in stocks and at least an S-T downtrend, the bonds should counter the trend in their traditional role. Hyper-correlation is not expected here, but always possible.
Tidal wave trends remain down with a COT on the 24th +/- a day.
Yields Soar, Sending 30Y Real Rates Positive Amid Overheating Panic: What Happens Next.
Earlier today, we pointed out that after being frozen for almost a year…
… real yields finally surged, and nowhere was this more visible than 30Y real rates (i.e., TIPS), which just rose above 0%…
… for the first time since June as 10Y real yields are exploding higher as a breakeven slump.
And now that Real Rates have joined Breakevens (which have moved sharply higher on the spike in commodity prices and especially oil) is surging fast, concerns about a real (no pun intended) VaR shock is also rising.
If true, early signs of a reversal will support the bonds and put added weight on the stock market averages. The triple moving average cross has two out of three pointing lower, short term. Plus, the intraday bar has traded out a five-wave decline and a textbook three-wave counter to 38%, the ideal place to place shorts for EWT traders.
Gold a deflation leader
The longer-term cycle – the 13-month cycle had the metal cresting in August 2011 and at a similar place 9 years later in August 2020. Its sub-cycle cycle is trending lower with a low due in June plus or minus a month. This would fit a longer-term picture that the rally in 2020 was a post triangle move, and as such, a final movie, not the beginning of a new bull run.
This also fits with our contrary nature with 95% +/- of anyone that follows the metals bullish, as pointed out in our last comment on gold. The new narrative is that digital currency is replacing gold. The move by content providers touting the BTC as the better alternative to gold as a hedge against monetary inflation is becoming popular.
Major support is at the apex of the triangle 1350 +/-, and that is coincidental to the ratio projection we make annual for the support that runs from 1265 to 1490 for the year. Contrary Thinker sees that zone being taken out before any snapback.
The bar chart pattern reminds me of the recent panic high in the 30-year T-bonds in March of 2020, followed by a drifting channel lower. For the bonds that have finally broken into something more forceful. The gold background is ringing a bell for March to see from the month’s opening to the close of the month a 260 point decline or greater.
TEM on the monthly bar calls for that range expansion, and the weekly and daily bar continued to support a trending mode after a TE#2 still in charge. This fits with an EWT point of view of a 1-2 series. Such patterns lead to a waterfall decline, what they call a 3rd of a 3rd, etc.
Deflation Back Story
Middle East Oil Producers Are Drowning In Debt
Arab Gulf oil producers are losing billions of U.S. dollars from oil revenues this year due to the pandemic that crippled oil demand and oil prices. Because of predominantly oil-dependent government incomes, budget deficits across the region are soaring.
Middle East’s oil exporters rushed to raise taxes and cut spending earlier this year, but these measures were insufficient to contain the damage.
The major oil producers in the Gulf then rushed to raise debt via sovereign and corporate debt issuance. Bond issues in the region have already hit US$100 billion, exceeding the previous record amount of bonds issued in 2019.
Abu Dhabi, the emirate holding nearly all of the oil reserves of the United Arab Emirates (UAE), issued a US$5-billion bond in September, with one tranche of it maturing in 50 years—the longest term for a bond issued by a sovereign issuer in the Gulf Cooperation Council (GCC), which also includes Bahrain, Kuwait, Oman, Qatar, and Saudi Arabia. Abu Dhabi’s latest issue was the third bond issue this year, following US$10 billion raised in the spring.
However, as previous cycles have shown, higher oil prices could once again make Gulf producers complacent and slow to reform economies to cut dependence on oil income. The oil-exporting countries in the Middle East became rich and powerful because of oil, and they will never want to kill the goose that lays the golden egg.
In finance, the term animal spirits arise in market psychology and behavioral economics. Animal spirits represent the emotions of confidence, hope, fear, and pessimism that can affect financial decision-making, which can fuel or hamper market growth or decline.
MarketMap-2021 Annual Scenario Planner provides historical parallelism based on 160 years of data, repetitive extra market events and their effect on markets, tidal cycles peaks and lows, market cycles for predicting time frames for lows, and astrological cycles to isolate cresting cycles.
Volatility Reports fine-tunes MarektMap’s longer-term scenario planner for the implementation of hedges and long positions. The research publication uses advanced price-based systems buy and short bias signals, traditional Technical Analysis, and new volatility modeling for market dynamics timing, including sectors and newer ETFs.
Both publications share curated news media to add backstories that fit with the ongoing market-based research.
Great and Many Thanks,
Jack F. Cahn, CMT
Contrary Thinker since 1989,
Contrary Thinker 1775 E Palm Canyon Drive, Suite 110- box 176 Palm Springs, CA
92264 USA. 760-459-4681 OR
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— Contrary Thinker does not assume the risk of its clients’ trading futures and offers no warranties expressed or implied. The opinions expressed here are my own and grounded in sources I believe to be reliable but not guaranteed.
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February 18, 2021
A “fragile” market suggests that any surprise big or small can set off a period of profit-taking.
As pointed out in a recent “VR,” our volatility model had turned mixed. That is important as our research is based on first principles, that form precedes real-world content, and that context precedes dynamics. Back a week or ten days the background was not reflecting complacency, so bearish expectations drop a notch, and when TEM primarily pointed to a low volatility persistent trend, that was not much help either for the bearish side.
That does not mean “risk-on,” the actuarial tables put this market on life support. Plus, just like the life of a loved one who is near the end, it is always a shock to the system when they pass no matter how much it was expected. At least in the back of one’s mind, it was just not today.
February 16, 2021
The markets are in a time window for change. While the long-term correlation between the bonds and stocks will become positive later this year, the short-term relationship will continue on its counterbalancing framework.
With our focus here on the long bonds, it appears they have completed another leg of the new secular bear market. In the first chart CT pegs the low hit last Friday as the end of short term wave one in the longer I-T wave (3). Hence based on EWT, this market is just weeks away from going into a full-fledge – everyone sees the bear – sell-off.
The chart window on the left shows the Tidal Trend system short from right after the panic buying peak. Today all three trend-following indicators on that chart are trending lower. Our stand-alone “panic” index (not shown ) on the weekly chart is at 64 with 65 or higher being a bell ringer.
February 13, 2021
So far, investors are unfazed by the growing number of the “somethings” that have not happened. You know the “known unknowns” that are lining up. Plus for good measure, I will include black swans events – the unknown unknowns.
So how will the market react if the republican party breaks apart? Could a lurch to the political left unwittingly pop the everything risk taker’s bubble?
February 5, 2021
Every dog thinks he’s an alpha until he meets a Wolf
A wolf can’t be trained to perform in the circus or corralled into an area to be speared for the sport of it.
Somethings are worth repeating, the high on 1/14/21 was expected, and tidal forces pulled prices lower into the 29th as expected – please see COT table for that period. From that near term, if the 14th was taken out the rally into a peak of ” from 2/1/2021 to 2/8/2021,” would put the high in line with a previous secular bull market peak in 1966.
February 3, 2021
The unraveling of the secular bull market in risk assets will come from the renewed secular bull market in the USD that began in 2011.
The redistribution of the wealth from the very top 1% to the 99%, will not blow out the budget or create monetary-based inflation, not turning the USA into a banana republic. I understand why the majority have a hard time getting their head around this when they cater to people with money. But highly unlikely not anyone in the 1%.
Furthermore, long-term Rooseveltian Economics is not Communism – no centralized ownership of assets – and has the basis for the longest bull market from 1942 to 1966 / 69 / 72, bubble up economics.
January 31, 2021
The right-hand side of the high pivot, or not.
January 26, 2021
Well, lots of talk about a raging optimistic sentiment behind the risk markets. In fact, highly leveraged risk is running at extremely high historical levels. Not to mention the babies “doing money” even while hanging with their dog.
But these “odd-lotter” signs of a speculative peak are being ignored because they have a lead time of ten months. “Say What!”
Worse yet, I saw “if there is a bubble, it really does not matter.” …what the!
January 20, 2021
If the January high pivot holds, it would set up an “event-based cycle” (EBC) with a particular two-year pattern. More on that in MarketMap-2021 Issue#4.
If today’s rally fails to hold, the cycle is pulling the market lower into January 29+/- 1 day.
The checklist for the bearish engagement of hedges and investments is not ideal yet, which leaves LT and I-T investors risk-off.
Part of that checklist is